The USDJPY has been hovering around resistance at the 110 price level, where the 50.0% Fibo level of the 124.23-95.74 decline has remained firm. Yet, the recent bout of financial sector concerns hasn't sunk the pair. Therefore, a clear break above this resistance could see a move towards 113.

Attached Images

 

__________________
John Rivera is the author of Market Brief, Top FX Headlines, and Forex Trading Weekly Forecast on DailyFX.com.

No, I don't use stops. I hedge for major reversals and trade in the opposite direction if a position gets buried for a while. It is more dangerous when a major trend gets going, like now, since you end up worrying if a counter trend position will be buried for a long, long time. But hedges can be managed to keep the equity growing until the price returns.

Overall, I am still remaining with a long bias until something earth shattering happens to interrupt the trend we have right now. I agree John R. that 110.60 may well get broken. I am thinking the trend will get interrupted end of year or after Christmas season, when economic activity will likely drop off.

For this correction, I am looking at two trend lines and the 38.2% fib level for the move up from 104. It translates to support at 109.68, 109.03, and ahead of 108.

Attached Images

 

went long @ 108,63. 108.60 should hold the current drop with possible retrace back towards 109,50 area to move back in the uptrend channel. Stop @ 108,40

Attached Thumbnails

 

You still holding that long?

yep, not looking good at mom....


edit: Stopped out @ 108.40

Long entry hit at 108.28, SL 108.08.

If GBP and EUR go up this looks as if it's coming down, it's just they are having a real time penitrating their resistance. We'll see how it goes. If 108.08 breaks we'll see 107.60.

GL

I would expect Bernake to talk the USD back up tomorrow, as has been the pattern on the initial correction off of the previous two tops -- going long is probably a good idea. If the pattern holds, 110.50 will be retested and there will be much denial, people going long, long, long, and it'll be a grind down from there.

But, at that point, things get juicy. Wave 5 of 5 up from 95 will be complete and an a-b-c correction should begin at that point, target the 61.8% 95-110.50.

Then, I personally expect bad news (horrible news) to be hitting by then and a new downtrend from there.

Edit: Unless you are obsessed with getting in on the absolute bottom, I would put a wide stop on a long, we may see one more lunge down towards 108 and then be done.

Look at all the yen crosses (EURJPY, GBPJPY, CADJPY, etc). They have all retraced more than 50 percent of their big declines from the Asian/European sessions.

USDJPY is holding on because of the US selling going on across the board. If it were just a reaction to the data out this morning, I would buy (as the indicators were second tier). However, with EURUSD above 1.48 and GBPUSD looking at 1.88, this may turn into something bigger; and dollar activity may be more important than carry.

What do you guys think?

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

We could well get a move down to 107.60-75 -- the move down to 104 did have another leg down after hitting the 38.2% fib. I think this may be just all of that long money getting stopped out. Nothing has really changed. It is just that 110.50 may well be the top and people were buying into all of the bullish talk.

This correction was inevitable -- you don't have a moonshot (USD index) without a equally steep correction.

I'm looking at anything as close to 80 as possible. I may build in a trade with a slightly lower average entry; but I could easily see NZDJPY climbing back up to the major falling trendline before resistance gives the market something to think about.

At least there is a considerable range to play with between 80 and the range low 74.10. A first target that is 75-100 points would have a high probability of success within a relatively quick time frame. Even a more aggressive target could round 200 points with relative confidence.

Gotta watch out for carry on this one though. You'll be paying to keep short this pair.

Attached Thumbnails

 

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

Well, I got 50pips from the gap up this morning. I had gone long after the 4-hr stochs turned up and we got the morning star at the bottom.

The weekly candles will be looking pretty bearish if we close under 110. Another hanging man with a lower low. I am thinking perhaps we'll see another battle next week as market conditions keep the USD bid, but smart money keeps it offered at and above 110. Then, we may be in for a drop not seen in quite a while.

Talk of Lehman getting bought is a little scary to me ... they wouldn't be dropping such news if things weren't getting bad there. Also noticed buried in Bernake's speech today:

"As you know, in March the Federal Reserve acted to prevent the default of the investment bank Bear Stearns. For reasons that I will discuss shortly, those actions were necessary and justified under the circumstances that prevailed at that time. However, those events also have consequences that must be addressed. In particular, if no countervailing actions are taken, what would be perceived as an implicit expansion of the safety net could exacerbate the problem of "too big to fail," possibly resulting in excessive risk-taking and yet greater systemic risk in the future. Mitigating that problem is one of the design challenges that we face as we consider the future evolution of our system."

I take this as a warning to the market not to get complacent about the Fed engineering another quick save in a similar event and that the market seems to be doing just that -- taking on excessive risk again.

My feeling on the matter is that if we can hold off on a necessary bailout for Fannie/Freddie and the threat of a major US bank going under (thank you former head of the IMF), then the clearing house for credit derivatives that that Fed. Reserve of New York and private banks are working to create will be in place and we will have a sound safety net for a market looking to liquidate.

Otherwise, another shock to the system will be just as bad (perhaps worse considering the sheer number of firms that are teetering on the edge this time around) as it was following the Bear Stearns fiasco.

It's a dangerous game to be long carry nowadays; but if these fears never come to pass, it would have been a great time to jump on a long-term trend...

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

In retrospect, I suspect that may have been what brought on all of the selling in Asian that finally broke the 109.50 bid. He was in Singapore when he said it ....

Looks like the failure of a Kansas bank and lingering concerns regarding the GSEs and Lehman are pushing the pair lower with 108.14 as its destination.

__________________
John Rivera is the author of Market Brief, Top FX Headlines, and Forex Trading Weekly Forecast on DailyFX.com.

Is it just me or does the past two weeks worth of price action look like it is a diamond formation? I don't think anyone has done any noteworthy study on the statistics for when these patterns end up as reversal or continuation plays; but the dominate trend is in place and we are in the middle of a bigger channel. A jump has a natural cap (and additional resistance above) and a breakdown will likely find 107 as at least a temporary floor.

What do you guys think?

Attached Images

 

__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com